Sequential International Joint-Ventures and the Option to Choose
AbstractThe purpose of this study is to formalize the optimal choice of market entry strategy for an individual multinational enterprise (MNE) from a dynamic perspective. It is argued that incorporating a suitable treatment of irreversibility, uncertainty and flexibility related to a MNEs investment decision gives further insights to the expansion, dissolvement, and optimal timing of international joint ventures (IJVs). The evolutionary process of the value of the foreign direct investment can be interpreted as a compound complex chooser option. The results suggest that uncertainty, size of equity share and future investment/divestment opportunities play an important role when it comes to transit from export to the first phase of the foreign direct investment commitment. The paper underscores the importance of modeling the dynamics of market entry and helps to refine the application of real options in the alliance context by providing a closed-form solution in continuous time to value
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0504007.
Length: 36 pages
Date of creation: 21 Apr 2005
Date of revision: 15 Nov 2005
Note: Type of Document - pdf; pages: 36
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Foreign direct investment; multinational enterprise; sequential investments; entry mode; international joint venture; real options;
Find related papers by JEL classification:
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-24 (All new papers)
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